Household Loan Repayment Difficulties after the Payment Moratorium : Hungarian Experience from the Covid-19 Pandemic

Abstract

We examine the relationship between the widespread, long-lasting debt forbearance on household loans introduced in Hungary at the outbreak of the coronavirus pandemic and subsequent loan repayment difficulties. We estimate linear probability and logit models at the contract level. Although our method is not suitable for identifying causal effects, participation in the moratorium proves to be a strong predictor of subsequent defaults. This is true even if we take into account the wide range of relevant factors observed at the end of the general moratorium period (October 2021). Our main results show that contracts which left the general moratorium at the end of the moratorium and, within this, those that took full advantage of the programme, were on average 3.2 and 4.2 percentage points more likely to become non-performing in September 2022 than those that never participated in the moratorium. This relationship can explain almost half of the differences in default rates between the respective groups.